Texas Rangers Blog

From one mess to another: Explaining issues with Rangers sale

BOSTON - When you allow a sportswriter, in debt to his underarms, attempt to explain a business transaction, you are asking for trouble. Haven’t been smart enough to find a business in which to make real money and haven’t been smart enough to stay out of debt. With that disclaimer in mind, please allow me to try and explain the things that have ground the Rangers sale to a halt. First, understand the sale is NOT DEAD. That word comes from multiple sources familiar with the negotiations. But there are issues and let’s try to sort them out:

DISCLAIMER:Also, this stuff is for smart people. I am not one. Take all the information here with a grain of salt. Obviously nobody is detailing all the hangups in the process and it’s entirely possible I am over-simplifying the issues. But I think this does give you a general picture of why this is so difficult to bring to conclusion.

• The lenders: A group of 40 lenders agreed to loan Hicks Sports Group $525 million at some point in the past. HSG declined to make an interest-only payment of $10 million in April, 2009, putting the loan in default. While Tom Hicks searched for investors and then buyers for the Rangers, the loan sat in default.

What’s important to not about the loan is that it is apparently a unique loan, where sports are concerned, in that it covers both the Rangers and Stars. So, they lenders (one of whom is Hicks) aren’t going to get back the sum of the loan with this deal. This combo loan makes it difficult to sort out what goes where as far as the lenders are concerned. If what I’m being told is correct, this kind of loan was not a customary practice and I believe there was no physical collateral put up to guarantee the loan. Ultimately what it means is the way the creditors are going to recoup their money is some now and some later. It apparently was a bad idea to lend money to a sports group and not specify the amounts doled out to each franchise. That one: That’s on the lenders.

They want as much money as possible out of this deal, especially after having to either completely write off an interest payment of $10 million or putting the receipt of it on hold for 14 months. The problem is: They apparently aren’t entitled to as much as they want. A big stumbling block in the deal is the inclusion of land around Rangers Ballpark as part of the transaction Chuck Greenberg and Nolan Ryan are trying to complete with Tom Hicks. That land was not under the HSG umbrella or the HSG loan. Hicks, while getting no proceeds from the sale of the Rangers, would be entitled to the dollars for the land. The lenders would like that money.

• Tom Hicks: Regardless of the final sale price or the dispersal of the funds on the sale of the Rangers, Hicks won’t see a penny. And it should be noted that he’s one of the HSG creditors, having sunk some $75 million of his own money over the last decade into the team. That money is gone. And it’s the price you have to pay for some questionable management. Nevertheless, while other creditors will see money, Hicks, the second-largest creditor to HSG, will see not a dime. He will, however, clear some money (and I assume it’s significant) from the sale of the land. But, to reiterate, that’s a separate deal.

By thumbing his nose at the interest payment last March and dragging his feet on the sale, Hicks only served to anger creditors. The combination of being in arrears to bankers in a bad economy and acting slowly to help said bankers recover their money only makes bankers angry. That much I know. I’ve made plenty of bankers angry.

• Major League Baseball: MLB Commissioner Bud Selig acknowledged to SportsDayDFW.com in March that he could get more actively involved in the sale process of the club. Late last month, MLB sent a letter with a veiled ultimatum to the lenders: “Get the thing done by April 9 or we’ll get involved.”

Well, it appears that time has come. MLB, to whom the Rangers also owe money, has become more actively involved, a source with knowledge of the process said. MLB’s No. 2 man, Bob DuPuy, went on the record Tuesday expressing disappointment with the sale being held up. For MLB to publicly take that stance is about as strong a rebuke of the lenders stance as you are going to get. But even that, along with MLB’s outstanding credit rating, hasn’t shaken the lenders, particularly one hedge fund. It’s almost as if the lenders are daring MLB to take the next step.

That step would probably be for Selig to invoke the “best interests of the game” clause in his charter as commissioner and seize control of the Rangers’ franchise to more quickly facilitate the sale of the club. With the problems involved, though, I’m not sure how exactly Selig can expedite the sale. Perhaps the only way might be for MLB to release the funds it would be getting from the sale (approximately $15 million or so) to the lenders. But if there is any group that is more angry at HSG than the lenders it would be the fellow MLB owners, still simmering over how Hicks junked up the free agency pay scale with the Alex Rodriguez signing a decade ago. The owners want their pound of flesh and money.

• Chuck Greenberg and Nolan Ryan: Their names are absent from this list. They and their investors have made their best offer and it appears all they can do is sit on the sidelines and watch while MLB and the lenders play high stakes poker over the division of the proceeds.

The gut feeling here is that a deal still gets done because MLB wants Greenberg/Ryan and because the sale has dragged on over a year already. The worst thing to do would be to drag the Rangers through bankruptcy and a restart of the sale process.

But it’s going to be up to MLB, the lenders and HSG to navigate through some choppy waters and hard feelings to make it happen.